Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1013072940369

Date of advice: 18 August 2016

Ruling

Subject: GST and precious metal

Question 1

For Transaction 1, what is the GST classification of the sale to/ acquisition by Entity AB? Will Entity AB be entitled to claim an input tax credit (ITC) for acquisitions of scrap jewellery or other precious metal from GST - registered businesses?

Answer

The supply of scrap jewellery and goods that containing other precious metal but are not in an 'investment form' or not of the required fineness ('other precious metal') supplied by GST registered entities is a taxable supply, provided the supplier satisfies section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act).

When Entity AB acquires a taxable supply of jewellery or 'other precious metal', it makes a creditable acquisition if paragraphs (a), (c) and (d) of section 11-5 of the GST Act are satisfied. Entity AB will be entitled to an ITC for any creditable acquisitions they make.

Question 2

For Transaction 2, what is the GST classification of the sale to/ acquisition by Entity ANB? Will Entity ANB be entitled to claim a notional input tax credit (ITC) for acquisitions of scrap jewellery or 'other precious metal' from non-GST registered entities?

Answer

The supply of scrap jewellery and 'other precious metal' made by a non- GST registered (unregistered) entity is not a taxable supply. Consequently, the acquisition of a non-taxable supply by Entity ANB is not a creditable acquisition under section 11-5 because paragraph (b) of section 11-5 is not satisfied. Entity ANB will not be entitled to an input tax credit for the acquisition under Division 66 of the GST Act.

Question 3

For Transaction 3, will Entity A be liable to GST on the sale of:

(a) The goods acquired under Transaction 1? Note, the goods many be sold in the exact same form as they were acquired, or they may be sold in a different form, such as raw metal blobs or pieces?

(b) The goods acquired under Transaction 2? Note, the goods sold would be the same goods in the identical form as they were acquired.

Answer

Yes. The supply of scrap jewellery and 'other precious metal' by Entity A is a taxable supply. Entity A is liable for the GST on any taxable supply they make.

Question 4

For transaction 4, will Entity B be entitled to claim an ITC for the acquisition of:

(a) The goods acquired under Transaction 3 (a)?

(b) The goods acquired under Transaction 3 (b)?

Answer

Yes. The supply of scrap jewellery and 'other precious metal' made by Entity A to Entity B is a taxable supply. Entity B will be entitled to claim an ITC for the acquisition if paragraphs (a), (c) and (d) of section 11-5 are satisfied.

Question 5

For Transaction 5, will Entity B be liable to GST on the provision of:

(a) Assaying services?

(b) Refining services?

Answer

Yes.

Question 6

For Transaction 6, will the refining process applied by Entity B result in products capable of being:

(a) GST- free under s 38-385 and/or

(b) Input taxed under s 40-100?

Answer

Provided the refining process applied by Entity B results in products that are precious metals as defined in section 195-1 of the GST Act, the supply will be either GST-free under section 38-385 or input taxed under section 40-100.

Question 7

For Transaction 7, what is the GST classification of finished products sold by Entity B:

(a) to traders, including Entity C?

(b) to GST- registered entities, such as jewellers?

Answer

A supply of products that are precious metals as defined in section 195-1 of the GST Act will be subject to the special rules for precious metals. That is, a supply of precious metal is GST-free, if it is the first supply of that precious metal after refining by, or on behalf of the supplier and the entity that refined the precious metal is a 'refiner of precious metal' and the recipient of the supply is a 'dealer in precious metal'. All other supplies of precious metal will be input taxed.

Question 8

For Transaction 8, will Entity C be entitled to claim ITCs for acquisition from Entity B under transaction 7(a)?

Answer

Where Entity C acquires a taxable supply from Entity B, they will be entitled to claim an ITC for the acquisition if paragraphs (a), (c) and (d) of section 11-5 are satisfied.

Where Entity C acquires GST- free or input taxed precious metal, the acquisition is not a creditable acquisition and they will not be entitled to an ITC.

Question 9

For Transaction 9, will the customers be entitled to claim input tax credits (ITC) for acquisition from Entity B under transaction 9(a), 9(b) and/or 9(c)?

Answer

The products acquired from Entity B, will be taxable, GST-free or input taxed, depending on whether the products are precious metal for GST purposes.

The customer that acquires a taxable supply will be entitled to claim an ITC for the acquisition if paragraphs (a), (c) and (d) of section 11-5 are satisfied.

The customer does not make a creditable acquisition when they acquire GST- free or input taxed precious metal and they will not be entitled to an ITC.

A customer that is not registered for GST will not be entitled to any ITCs for its acquisitions because paragraph (d) of section 11-5 is not satisfied.

This ruling applies for the following periods:

The applicants are seeking the private ruling generally for the tax periods within the financial year ending on 30 June 20XX, and for subsequent tax periods.

Relevant facts and circumstances

Transaction 1: Entity A buys scrap jewellery and goods that contain various precious metals but are not in an 'investment form' or not of the required fineness ('other precious metal') 'other precious metal' from GST registered businesses. These transactions would be acquired by Entity A and Entity AB.

Transaction 2: Entity A buys scrap jewellery or 'other precious metal' from entities that are not GST registered (e.g. individuals). These transactions would be acquired by Entity ANB.

Transaction 3: Entity A would sell the scrap jewellery to a refiner (either to Entity B or another unrelated refiner). In this analysis, these sales will be referred to as:

(a) the sale of scrap by Entity AB, and

(b) the sale of scrap by Entity ANB

The goods being sold by Entity B under 3(b) would be the identical goods acquired by Entity ANB under Transaction 2.

The goods being sold by Entity ANB under 3(a) may either be the identical goods acquired by Entity AB under Transaction 1, or could be those goods acquired under Transaction 1 and melted down into what we will refer to as 'raw metal' blobs or pieces.

Transaction 4: Entity B would acquire scrap jewellery from GST-registered businesses including Entity ANB. In this analysis, these acquisitions will be referred to as:

(a) the acquisition of scrap from Entity AB ; and

(b) the acquisition of scrap from Entity ANB.

Transaction 5: Entity B may also provide refinery services to customers, such as:

(a) assaying and

(b) refining

Transaction 6: Entity B would refine the scrap it has brought and produce a range of different products. X Y and Z produced will bear a mark or characteristic accepted as identifying and guaranteeing the fineness and quality of the product. Some will be unmarked.

Transaction 7: Entity B would sell its products to various customers. For the purposes of this explanation sales will be made to:

(a) traders and

(b) GST- registered businesses

All products sold are based on weight, purity and the market spot rates.

Transaction 8: Entity C would acquire products from Entity B and from other refiners.

Transaction 9: Entity C would sell its products to customers. For the purposes of this explanation sales will be made to:

(a) traders,

(b) GST- registered businesses e.g. jewellers, and

(c) other customers (individuals)

All products sold are based on weight, purity and the market spot rates.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 9

A New Tax System (Goods and Services Tax) Act 1999 Division 11

A New Tax System (Goods and Services Tax) Act 1999 section 38-385

A New Tax System (Goods and Services Tax) Act 1999 section 40-100

A New Tax System (Goods and Services Tax) Act 1999 section 66-5

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Part A- Relevant GST Act provisions concerning supplies

Basic rules

Taxable Supplies

Section 9-5 states that you make a taxable supply if:

However, the supply is not a * taxable supply to the extent that it is * GST-free or * input taxed.

*indicates a legislative defined term in section 195-1

Special rules

GST-free supplies of precious metal

Under section 38-385, a supply of precious metal is GST-free if:

Input taxed supplies of precious metal

Section 40-100 provides that a supply of precious metal will be input taxed to the extent that it is not GST-free under other provisions.

Relevant definitions in section 195-1:

'precious metal' means:

Note: No regulations have been made to specify any other substance - to be precious metal for GST purposes; the metal must therefore be gold, silver or platinum.

'refiner of precious metal' means an entity that satisfies the Commissioner that it regularly converts or refines * precious metal in * carrying on its * enterprise.

'dealer in precious metal' means an entity that satisfies the Commissioner that a principal part of * carrying on its * enterprise is the regular supply and acquisition of * precious metal.

PART B - Relevant GST Act provisions concerning acquisitions

Basic rules

Creditable acquisitions

You are entitled to input tax credits (ITCs) for any creditable acquisitions you make.

Section 11-5 states that you make a creditable acquisition if:

Special rules

Division 66 of the GST Act entitles a GST registered entity to claim input tax credits for the acquisition of second-hand goods from unregistered suppliers for the purpose of sale or exchange (but not for manufacture) in the ordinary course of its business. Section 66-5 states:

(2)However, this section does not apply, and is taken never to have applied, to the

acquisition if:

Relevant definition in section 195-1:

'second-hand goods' does not include:

Part C - What are 'second- hand goods' for the purposes of Division 66

The second -hand goods definition in section 195-1 is defined by excluding certain goods from being 'second-hand goods' for GST purposes.

Paragraph (a) of the definition of second-hand goods excludes precious metal from being second-hand goods for the purposes of Division 66. 'Precious metal' in this context carries the meaning given in section 195-1.

Paragraph (b) excludes goods to the extent that they consist of gold, silver, platinum, or any other substance which, if it were of the required fineness, would be precious metal. This paragraph must be read as excluding goods to the extent that they consist of gold, silver, platinum or any other substance which, if it were of the required fineness, and in an investment form, would be precious metal. In other words, paragraph (b) excludes from second-hand goods gold, silver, platinum regardless of the form or fineness of the relevant goods.

To the extent that goods consist of a substance which would be precious metal if of the required fineness and in an investment form, the acquisition of those goods by a second-hand dealer from an unregistered entity is not a creditable acquisition under Division 66. Therefore, where a dealer acquires a second-hand item from an unregistered person and the item contains gold, silver or platinum of whatever purity, then, to the extent that the acquisition is of the metal (of whatever purity), the dealer is not entitled to an input tax credit under Division 66 (or otherwise) for that acquisition.

Part D - What is 'precious metal' for the purposes of GST

Goods and Services Tax Ruling GSTR 2003/10 (GSTR 2003/10) explains that to be precious metal for GST purposes, a thing must be the metal gold, silver or platinum of specified fineness and in an investment form.

The legislative definition of precious metal prescribes the required fineness of the following precious metal as:

Paragraph 29 of GSTR 2003/10 provides that for gold, silver or platinum to be in an 'investment form' for the purposes of the GST it must be in a form that:

Tradeable form

Paragraph 22 of GSTR 2003/10 provides that 'tradeable form' is considered to be bars, wafers and bullion coins.

Accepted marks or characteristics

Paragraphs 23 and 24 of GSTR 2003/10 discuss accepted marks or characteristics on the metal. It provides that to be tradeable on the bullion market, the metal must bear some characteristic on its face accepted by the market as identifying or guaranteeing its fineness or quality. An example is a hallmark used on bars. An example of a characteristic is a characteristic pattern, design, noted weight and fineness found on a bullion coin that identifies the coin as issued, backed and guaranteed as to fineness by a government.

Some do not bear any mark as to their fineness and quality and are therefore not in investment form.

Spot price

Paragraphs 26 to 28 of GSTR 2003/10 discuss prices determined by reference to the inherent precious metal content. They provide that it is considered that if the metal is not supplied in a form which is usually traded at a price that is determined by reference to the spot price of the metal it contains, this indicates that it is not in an investment form.

Part E - The application of the law to the transactions

Transactions 1 and 2

Transaction 1 and 2 is about the GST implications of acquiring scrap jewellery or 'other precious metal' from GST registered and unregistered entities.

When acquired from GST registered entities

A supply of scrap jewellery or 'other precious metal' that is not precious metals as defined in section 195-1 of the GST Act will be subject to the basic rules.

The supply of scrap jewellery or 'other precious metal', including raw metal blob or pieces made by a GST registered entity will be a taxable supply if the supplier satisfies section 9-5.

The acquisition of a taxable supply is a creditable acquisition provided the requirements of section 11-5 are satisfied.

As the supply of scrap jewellery or 'other precious metal' is a taxable supply the recipient, Entity AB would make a creditable acquisition if paragraphs (a), (c) and (d) of section 11-5 are satisfied.

Entity AB will be entitled to ITCs for any creditable acquisitions they make.

When acquired from unregistered entities

The supply of scrap jewellery or 'other precious metal' by an unregistered seller is not a taxable supply to the recipient, because paragraph (d) of section 9-5 is not satisfied. Consequently, when Entity ANB acquires a non-taxable supply from an unregistered entity, it does not make a creditable acquisition as paragraph (b) of section 11-5 is not satisfied.

However, Division 66 of the GST Act entitles a GST registered entity to claim input tax credits for the acquisition of second-hand goods from unregistered suppliers for the purpose of sale or exchange (but not for manufacture) in the ordinary course of its business.

The legislative definition of 'second hand goods' excludes both precious metal as defined in section 195-1 and 'goods to the extent that they consist of gold, silver, platinum, or any other substance which, if it were of the required fineness, would be precious metal'. Therefore, scrap jewellery or 'other precious metals' are not 'second-hand goods'. to the extent that they consist of gold and silver (and platinum). Entity ANB is not entitled to an ITC under Division 66 for its acquisitions of scrap jewellery or 'other precious metal' to the extent that the good consists of gold, silver or platinum, since these goods are excluded.

Entity ANB will only be entitled to claim an input tax credit under Division 66 of the GST to the extent that the goods consist of non-precious metals components, subject to satisfying all other requirements of Division 66.

Transaction 3 and 4

Transactions 3 and 4 relate to the GST consequences of supplying and acquiring scrap jewellery or 'other precious' between GST registered businesses.

The supply and acquisition of scrap jewellery, or 'other precious metal' including raw metal blobs and pieces between GST registered businesses will be subject to the basic rules, because scrap jewellery or 'other precious metal' is not precious metal as defined in section 195 -1 of the GST Act.

As a supplier, Entity A will make a taxable supply, when it supplies scrap jewellery or any 'other precious metal' and will be liable for the GST on the supply.

As the recipient of the taxable supply, Entity B will make a creditable acquisition of scrap jewellery or 'other precious metal' if paragraphs (a), (c) and (d) of section 11-5 are satisfied.

Entity B is entitled to claim ITCs for any creditable acquisitions they make.

Transaction 5

Transaction 5 relates to the supply of refinery services.

The supplies of refinery services are subject to the basic GST rules outlined in Division 9 because the services are not covered by any of the special rule provisions in the GST Act.

As such, the supply of refinery services is a taxable supply. The supplier, Entity B, will be liable for GST on any taxable supply they make.

Transaction 6, 7, 8 and 9

Transactions 6 and 7 pertain to the GST implications of the supply of products refined by Entity B.

Transactions 8 and 9 pertain to the GST consequences for an entity that acquires products from Entity B and makes subsequent supplies of those products.

Supplies made by Entity B

The types of the products determines whether a supply of them is treated as taxable (section 9-5), GST-free (section 38-385) or input taxed (section 40-100).

The supply of precious metal (as defined in section 195-1) will be either GST- free or input taxed.

Any other supplies of products by Entity B that do not meet the definition of precious metal for GST purposes, will not be subject to the special rules and therefore not GST-free or input taxed. The supply and acquisition of these products will be subject to the basic rules.

Precious metal for GST purposes

The legislative definition of precious metal prescribes the required fineness of the following precious metal as:

Paragraph 29 of GSTR 2003/10 provides that for gold, silver or platinum to be in an 'investment form' for the purposes of the GST it must be in a form that:

The finished products by Entity B will be precious metal for GST purposes where they:

First Supply of precious metal after refining-GST-free

A supply of precious metal is GST-free, if it is the first supply of that precious metal after refining by, or on behalf of the supplier and the entity that refined the precious metal is a 'refiner of precious metal' and the recipient of the supply is a 'dealer in precious metal'.

An entity that makes a GST-free supply is not liable for GST payable on the supply; however the supplier will be entitled to claim input tax credits for the GST payable on its business inputs that relate to that supply (section 9-5;11-15).

As per your submission, Entity B carries on a precious metal business of various refinery services of precious metals. Based on this, Entity B is a 'refiner of precious metal' for the purposes of section 195-1, as it regularly converts or refines precious metal in carrying on its enterprise.

According to the legislative definition a 'dealer in precious metal' is an entity where the principal part of carrying on its enterprise is the supply and acquisition of precious metal. The term 'principal' is not defined in the GST Act. However, the Macquarie Dictionary defines the adverb 'principally' as 'chiefly' or 'mainly'. Therefore, to have a principal part to supply and acquire precious metal, it is considered that the supply and acquisition of precious metal must be the chief or main activities of entity carrying on the enterprise.

If Entity C main activities are the supply and acquisition of precious metal in carrying on their enterprise, then it would be considered as a 'dealer in precious metal' for the purposes of section 38-385 of the GST Act.

As a supplier and 'refiner of precious metal', if Entity B makes the first supply of precious metal after its refinement to Entity C, a 'dealer in precious metal' the supply is GST-free.

Where Entity C acquires GST- free precious metal from other entities, including Entity B, they will not be entitled to an ITC because they have not made a creditable acquisition.

Any other supply of precious metal-input taxed

Supplies of precious metal that are not GST-free under section 38-385 will be input taxed under section 40-100.

Entity B / Entity C will make an input taxed supply of precious metal where the supply is of precious metal that has already been acquired from other entities.

A recipient of an input taxed supply is not entitled to an ITC, because the acquisition is not a creditable acquisition as paragraph (b) of section 11-5 is not satisfied.

Where Entity C acquires input taxed precious metal (because it is not the first supply after its refinement), they are not entitled to an ITC because it does not make a creditable acquisition.

All legislative references in this ruling are to A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).